Saturday, March 5, 2011

The planned mass rapid transit (MRT) project may be just what the city of Kuala Lumpur needs as a long-term solution to public transportation. But the MRT plan is today mired with controversy.

Some resident associations have been up in arms about the potential disruption to their homes and likely increased traffic congestions during the construction phase of the mega project. Some are also questioning the proposed alignment of the MRT on the grounds that the Sungai Buloh to Kajang route does not reach the right catchment areas while unjustifiably passes through mature and wealthier neighbourhoods that have less of a need for public transport.

Another oft-cited critique is that the Government should first fix other forms of public transport such as the bus system, which should cost much less to solve, before embarking on the multi-billion MRT.

That then leads to the issue of cost can the Government really afford to fork out the estimated whopping RM50bil needed for building the MRT?

There are also concerns about the Government's choice of making Syarikat Prasarana Bhd the MRT project owner. Critics argue that since Prasarana and its subsidiary RapidKL have failed at something as basic as creating an efficient public bus service in the city, that it isn't the best body to be owning the MRT.

Not only that, Prasarana's track record is questionable. According to the 2008 Auditor-General's report, a number of troubling allegations were made over the past management of Prasarana, including the acquisition of land at inflated prices, the purchase of loss-making entities for no good reason and buying buses that didn't work properly. Its financial strength is another issue.

Yet another grouse with the MRT is the choice of making Gamuda Bhd and MMC Corp Bhd the project delivery partners (PDP) of the MRT project, considering that these two companies are planning to bid for a significant portion of the whole project mainly the tunnelling works.

To be fair, many of these concerns are being addressed. Consider first the worries of residents in pockets such as Taman Tun Dr Ismail (TTDI). What had heightened their concerns was the pasting of notices in their neighbourhood that some of their houses could be acquired under the Land Acquisition Act 1960 for the purposes of building the MRT track.

SPAD sheds light

But the body at the centre of the MRT, the newly-formed Land Public Transport Commission (SPAD), is helping to ease concerns. For starters, soon after the TTDI fiasco concerning the land acquisition notices, Spad issued a statement saying that houses there need not be acquired as they are located beyond the 20m minimum buffer zone for the proposed MRT line. Spad said that the final decision on the land acquisition would only be made after the public display ends in May. “At this moment, the proposed alignment does not require acquisition of residential homes in TTDI.”

Members of the public looking at an exhibition on the MRT project in Bangsar LRT station.

In an interview with StarBizWeek, SPAD's chief executive Mohd Nur Ismal Kamal stressed that it was open to feedback from the rakyat. “This (the MRT project) is not about bulldozing ideas or pushing solutions down people's throats,” he said.

SPAD has opened various lines of communication for public feedback on the project, especially on the alignment of the MRT stations, through public displays, its website and telephone lines. Nevertheless, a consultant says for a project that may cost up to RM50bil or more, there is little information about the stations, traffic flow, parking facilities, or fare mechanism.

The environmental impact assessment (EIA) report, which has been made public, is another source of information on the MRT.

Notably, the EIA report itself has raised a few issues about the MRT, such as traffic congestion, noise, dust and pollution and ground vibrations that could affect households from the building of the MRT. The report said the MRT project will affect 108,000 residential units in 403 lots where the 51km mass rapid transit line will traverse.

However, the EIA report also recommended steps to overcome or mitigate those impacts. SPAD has said it would ensure the MRT project owner would follow the steps.

Is Prasarana right for the job?

As for the choice of Prasarana as the project owner, questions are raised as to its suitability. Not only are there questions about its track record and alleged past transgressions, there is also the concern about its financial viability. It has been reported that Prasarana had total debts to the tune of RM9.64bil as at end-2009 and has to repay bonds to the tune of RM7.1bil (in principal amounts) that will mature between 2011 and 2023. There are also reports that the Government has allocated RM2.5bil to pay for Prasarana-issued bonds which are due in November 2011.

Prasarana has recently said it would be raising between RM5bil and RM10bil over the next five years via a bond sale to fund the light rail transit (LRT) extensions. It had also raised RM2bil in 2009.

According to SPAD, there is sound rationale for the choice of Prasarana as the MRT project owner. “It is 100%-owned by the Ministry of Finance Inc and was set up to facilitate, coordinate, undertake and expedite infrastructure projects approved by the Government. As the MRT is a government-funded infrastructure project, Prasarana is the most relevant entity to be the owner of the asset of the (MRT) network. It also has a lot of expertise in owning public transport assets built up over the years,” explains SPAD's Mohd Nur. He adds that there is going to be a governance structure in place to ensure that Prasarana meets the high standards expected of it.

Prasarana's property play

Interestingly, Prasarana will play a key role to try to make money from real estate opportunities given to it by the government.

The financial model being used for Malaysia's MRT is called “rail plus property” and is similar to what Hong Kong's Mass Transit Railway, which is often cited as one of the world's most-successful examples of a well-run and financial-viable inner city train project.

Explains Prasarana's newly-appointed group managing director Shahril Mokhtar in a recent interview with StarBizWeek: “We are doing a study that out of the 51 km (line of proposed MRT), we have to identify a few parcels (of land) that can be developed into commercial or residential areas. We can partner with property developers and profit from the development can be shared. These properties will be around the station or on top of the stations. It can be rented or sold. The profit can be returned to the Government to offset the cost of the MRT. Hong Kong has done this for the last 20 over years.”

According to a consultant familiar with the Hong Kong experience, it had the advantage of planning the system in the 70s when it was still developing. Another success factor was the strict check and balances imposed by the Government on the operator of the MTR.

Shahril says that under his stewardship, Prasarana will become self-sustaining, with a target of breaking even by 2015. Prasarana has yet to reply to specific questions on its financial status.

Shahril took over the helm of Prasarana in October last year and his mandate is to transform the asset owner and operator of several public transport providers. Two months after he came on board, he dished out a 2-year transformation plan while a five-year master plan is crafted. He also restructured the management team, tweaked the organisational structure and set a direction for the company.

“We have to win the trust of the customer. If there is no trust, it would be tough. We also need to change the perception of Prasarana,'' he says.

The PDP issue

Back to the MRT. On the appointment of the MMC-Gamuda joint venture as the project's PDP, SPAD has explained that MMC-Gamuda will be the MRT project manager but with the added responsibility of having to deliver the project within an agreed time and cost.

“Any cost overrun and delays in project completion which are basic common risks in projects will be borne by the PDP. The PDP is not a turnkey contractor and the project will be divided into work packages which will be awarded individually through open tender. The Government will make the final decision on the awarding of contracts.”

The fact remains though that the Government will be footing the bill of the MRT, which means MMC-Gamuda should stand to make a decent profit as project managers of the multi-billion project. It is understood that MMC-Gamuda were picked as the MRT projects PDP as they are the ones to have first pitched the MRT project to the government, having hired consultants to do a detailed study on it.

MMC-Gamuda will also not be allowed to tender for any of the work packages except for tunnelling works. SPAD said the Government felt that an exception should be made as the PDP is the only local construction company that has experience in major tunnelling works. Still, the tunnelling work should again provide decent profit margin to MMC-Gamuda if they win the bid.

SPAD's Mohd Nur also says that costs will be kept down through the implementation of a value management study where an independent party will scrutinise the project plans to ensure that optimum value is derived.

Together with the “rail plus property” model, the plans sound good but that's only on paper. It is left to be seen if the MRT project will be carried out without any excesses and in the most transparent way possible. To be fair, one positive step has already been the setting up of SPAD.

“Before, public infrastructure projects were just dished out to different parties, who subsequently needed to be bailed out by the Government. Now at least, there is a one-stop regulator that is trying to ensure that things get done correctly,” says one observer.

One of SPAD's first tests will be to decide on the alignment of the MRT, which is turning out to be a challenging job.

“We're having to look at it from a myriad of perspectives and balance it all,” says Mohd Nur. Among the factors being taken into account are the social impact, engineering aspect or “constructability”, journey times, land acquisition costs, accessibility to users and ridership.

It will certainly be interesting to see SPAD's final decision on the MRT allignment and the basis at which it came to that conclusion.

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